Midwest Company manufactures portable radios. Shop Smart, a large retail merchandiser, wants to buy 200,000 radios from Midwest Company for $\$ 12$ each. The radio would carry Shop Smart's name and would be sold in its stores.

Midwest Company normally sells 420,000 radios a year at $\$ 16$ each; its production capacity is 540,000 units a year. Cost information for the radios is as follows:

The $\$ 1$ variable selling and administrative expenses would not be applicable to the radios ordered by Shop Smant since that is a single large order. Shop smant has indicated that the company is not interested in signing a contract for less than $2(x)(x \times)$ radios. Total fixed costs will not change regardless of whether the shop smart order is accepted.
1. Identify any opportunity costs that Midwest Company should consider when making the decision.
2. Determine whether Midwest Company should accept Shop Smart's offer.
3. Interpretive Question: What qualitative factors might be relevant (o) this decision?

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Production costs: Variable production costs.. Fixed manufacturing overhead ($2,100,000 420,000 units). Selling and administrative expenses: Variable....t Fixed ($420,000+ 420,000 units) 57 5